New SAU 31 leader says bad practices led to $1.2M deficit

HOWLAND, Maine — Incorrect budgeting practices and insufficient board oversight have since 2008 created an estimated $1.2 million budget deficit at School Administrative Unit 31 that leaves school officials scrambling to pay bills and find savings, officials said Wednesday.

New SAU 31 Superintendent Michael Wright discovered the budgeting and accounting problems shortly after his SAU 41, the former School Administrative District 41, consolidated with the former SAD 31 on July 1. A subsequent, careful review of SAU 31’s records revealed, he said, that school leaders gradually had created the deficit by projecting revenues from undesignated fund balances that never actually occurred.

Wright also learned, he said, that accounts thought to have surpluses actually carried deficits.

John A. Neel, chairman of the SAU 31 board, blamed a turnover in account auditors for the problem. He said the turnover and other administrative problems dated to former Superintendent William Ziemer’s leadership in the mid-2000s through the tenure of Superintendent Jerry White, which will end in September when the changeover to Wright’s administration is complete.

“It’s a combination of things, I believe,” Neel said Wednesday. “We’ve changed auditors. We just went through the 2010 audit two weeks ago. If you think about it, that puts us in a situation where we’re not sure where we’re at financially.”

“It goes back to the battle of trying to get an accurate figure based on the audit,” Neel added. “Jerry inherited this problem and has been trying to deal with it.”

Wright agreed, but said the problem didn’t end there.

An audit report on the 2007-08 fiscal year to school officials that Wright provided Wednesday cited failures to balance accounts, inaccurate and incomplete record-keeping and weak internal controls over financial reporting that all contributed to four accounts — the general fund, capital projects, e-rate and school lunch — ending the year in deficit.

“The audit speaks to the inconsistencies and reconciliations of funds and makes recommendations in regard to the fund balances and deficits at the end of the year and says that you cannot continue to fund negative balances,” Wright said.

The auditor’s report that year blamed “lack of follow-up of prior year audit recommendations” for some problems and “lack of adequate oversight and fiscal management.” It recommended closer management reviews of grants and projects and monthly budget reports “to ensure deficit fund balances are addressed in a timely manner.”

The 2008-09 report showed that management had instituted staff training to correct problems and upgraded accounting software to make oversight easier, but still cited the same accounting and oversight problems of the previous year contributing to deficits in the same accounts — plus three more accounts

“I can’t speak to the reasons why somebody would project a fund balance that didn’t exist,” Wright said. “I suspect that it happened to keep taxes down. I think one of the lessons from this will be that any school board shouldn’t be complacent.”

Under Maine state law, a superintendent directs a school system as its top administrator, with the school board providing oversight and direction.

School board members “should ask to see audits, seek more information than less, and if they see something that doesn’t look right, they should seek more information and ask more questions,” Wright said. “There were certainly signs in audits that suggested that you can’t use fund balances when you don’t have the money.”

“That is a fair opinion of what happened and what should happen,” Neel said in response. “We [board members] are doing more and asking more questions … It [accounting] is a hard thing to grasp.”

White did not immediately return messages seeking comment on Wednesday.

School leaders have big holes to dig themselves out of. With the recent school budget hopefully freed of errors and corrected to no longer anticipate revenues from undesignated fund balances, Wright said, school leaders must find a way to address the $1.2 million deficit, which consists of:

To control spending immediately, Wright has directed that all potential expenses be approved first by him and that school principals identify areas where cuts can occur without affecting staff or programs.

Wright had to turn away workers who came to Enfield Station School and Penobscot Valley High School on Wednesday to polish the gymnasium floors, he said.

Wright also has approached two banks to see about securing loans to help the school system meet its monthly expenses. The exact amount of the loans hasn’t been determined. SAU 31 Finance Committee members also hope to meet to discuss the problem, Neel said. No date has been set.

If some solution isn’t found, Wright said, layoffs of ed techs and teachers might have to occur.

SAU 31 includes the towns of Burlington, Edinburg, Enfield, Howland, Maxfield and Passadumkeag.